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Exam 2: Property Acquisition and Cost Recovery

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Question 41

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Lenter LLC placed in service on April 29, 2016 machinery and equipment (7-year property) with a basis of $600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including section 179 expensing (but ignoring bonus expensing) . Assume that the 2015 §179 limits are identical to 2016:

A) $85,740
B) $120,000
C) $514,290
D) $585,740
E) None of these

F) A) and B)
G) A) and C)

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Question 42

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Oksana started an LLC on November 2 of the current year. She incurred $30,000 of start-up costs. How much of the start-up costs can be immediately expensed for the year? How much amortization may Oksana deduct in the first year?

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$5,278
Explanation: $5,000 of ...

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Question 43

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Flax, LLC purchased only one asset this year. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Tasha LLC purchased furniture (7-year property) on April 20 with a basis of $20,000 and used the mid-quarter convention. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense, rounding to a whole number:

Which depreciation convention is the general rule for tangible personal property?

Cost depletion is available to all natural resource producers.

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

Reid acquired two assets in 2016: computer equipment (5-year property) acquired on August 6^th with a basis of $500,000 and machinery (7-year property) on November 9^th with a basis of $500,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). Assume the 2015 §179 limits are identical to 2016.

Timothy purchased a new computer for his consulting practice on October 15^th of the current year. The basis of the computer was $4,000. During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state. The computer was never used for business purposes again. Timothy had $50,000 of taxable income before depreciation. What is Timothy's total cost recovery expense with respect to the computer during the current year?

Eddie purchased only one asset during the current year. Eddie placed in service furniture (7-year property) on May 1^st with a basis of $26,500. Calculate the maximum depreciation expense, rounded to the nearest whole number (ignoring §179 and bonus depreciation).

Like financial accounting, most acquired business property must be capitalized for tax purposes.

Northern LLC only purchased one asset this year. In 2016, Northern LLC placed in service on September 6^th machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing), rounded to the nearest whole number. Assume the 2015 §179 limits are identical to 2016.

Sequoia purchased the rights to cut timber on several tracts of land over a fifteen-year period. It paid $500,000 for cutting rights. A timber engineer estimates that 500,000 board feet of timber will be cut. During the current year, Sequoia cut 45,000 board feet of timber, which it sold for $900,000. What is Sequoia's cost depletion expense for the current year?

Which of the following depreciation conventions are not used under MACRS?

If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used. All real property is depreciated using the mid-month convention and does not factor into applicability of the mid-quarter convention for personal property.

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimated that Santa Fe will recover 5,000 pounds of turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $250,000. What is Santa Fe's cost depletion expense for the current year?

Businesses may immediately expense research and experimentation expenditures or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Arlington LLC purchased an automobile for $40,000 on July 5, 2016. What is Arlington's depreciation expense for 2016 if its business use percentage is 75 percent? (ignore any possible bonus depreciation)

An asset's capitalized cost basis includes only the actual purchase price; whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.